An emergency fund. Maybe it’s not the sexiest topic in the world, but we’ve got to let you in on a little secret. That little pot of cash put away for a rainy day?
It means not having to deal with nervous sweats when your car starts to make a weird squeaking noise or when you see your credit card statement after going a little too hard on the Black Friday sales.
Because when it comes to your money, giving yourself a financial safety net is about one thing - ✨self care✨ It gives you the confidence and financial security to make choices you want to make, rather than being forced into ones you have to make.
Don’t have one? Don’t worry, you’re definitely not alone, 57% of Americans couldn’t afford an emergency expense of $1,000. We’re here to set you straight on just how to start building your own emergency fund in 2024, or as we like to call it, your f*ck it fund.
Plus, it’s exactly the kind of topic your Boomer uncle probably asked you about on Christmas Day, so now you can be ready to put him in his place next year 💅
What is an emergency fund?
Ok let’s take a quick step back. Based on the name, you can probably guess what an emergency fund is. It’s a fund. For emergencies 🙃 Yes, but it’s also so much more than that. It’s like a shield which protects you from all the grifters out there trying to get their hands on your cash ( like your landlord 🤡).
Alright, that might sound a bit Marvel Avengers Spiderthor, but an emergency fund really is an incredibly powerful tool for your overall financial health. Because if you don’t have one, it doesn’t take much to send you down a very difficult path.
Penny’s car breaks down, and it’s going to cost her $700 to fix. But she doesn't have that money, so instead she tries to find a friend or family member to borrow it off. In the meantime, she can’t get to work without her car.
Eventually, after not being able to find anyone to borrow the money from, Penny needs to put it on a credit card 😬 Now, she needs to find extra cash each month to pay off the minimum payment on the card, which makes it more difficult for her to pay rent and her phone bill. Now she has even less money to cover expenses, and down the spiral goes.
Or maybe it’s even worse. Maybe Penny’s a**hole boss decides he needs to get enough cash together for a new vacation home in Tahoe, so he lays off half his employees and pockets their paychecks 💀 Now Penny has to take any job she can get her hands on so she has enough to pay rent next month.
Without her own stash, Penny loses power and control over her life. Does it suck that money has all that power? Yep, welcome to the capitalist nightmare we live in. But hey, at least you’ve got Cleo to help you navigate it 🤷♀️
How much do you need in an emergency fund?
Now you’re convinced you’ve gotta have one, how much should you put in your emergency fund? Well that’s different for everyone. Living in your parents basement and living on a diet of ramen and Lucky Charms? Well then there’s at least one positive to your situation, you won’t need a very big emergency fund.
Guest starring in episodes of The Kardashians and sitting courtside once a week? Well, you’re going to need a little more than that.
Really though, a good rule of thumb is between 3 to 6 months living expenses. That gives you some time to get your life sorted if you do lose your job (hope the skiing in Tahoe sucks, Greg!), but also provides a chunky buffer for other expenses that might come up.
If money is super tight and you don’t have many luxuries in your budget (does anyone? 🙃), then it would make sense to try to get the bigger number to give yourself a bigger buffer. If you’ve got a lot of expenses that you could cut if things get dicey, you could probably get away with the lower amount.
Top tips for building an emergency fund
Three to six months living expenses probably looks like a big number. But you don’t need to get it saved within the next week. It might take you a year, two years, or even more, to get that amount of money together. That’s ok, Cleo’s got your back. Check out Cleo’s save feature to help you build your f*ck it fund in no time.
Keep it in a separate account
If you want to make sure you’re not dipping into your fund for non-emergencies (a sale at Target doesn’t count), it’s important to keep the cash separate from your main checking account. Cleo calls these Savings Pots, and it means that you’re never in danger of tapping away your savings after one too many at the bar 🍾
Dip in but build back
With that said, don’t be afraid to dip into the account when you do have an emergency. That’s what it’s there for. But if you do need to, the important thing is to start building it back up again as soon as you can.